'EU SHOOTING itself in foot if it uses trade sanctions as weapon against UK', experts WARN

BRUSSELS must be very careful before it attempts to use trade sanctions to punish the UK post-Brexit because global reserve managers would be likely to dump the euro if the UK has an acrimonious split from the EU, financial experts have cautioned.

"If you stand back and look at Britain’s ‘CV’, it's actually not bad at all", says expert (Image: GETTY)

Stephen Jen, a currency expert at Eurizon SLJ, argued reserve managers in Asia and other parts of the world would probably cast the euro aside if there was a showdown between the EU and the UK.

The financial expert said the decision stemmed from an inherent scepticism towards the EU’s policy of a single currency and the plan to converge the economies of the bloc's member states through the Economic and Monetary Union (EMU).

Speaking to the Daily Telegraph, Mr Jen said: “Central banks are sceptical about EMU and still have very little trust in the long-term prospects for the euro.

“Brussels needs to think very carefully about trying to punish the UK.

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“But the extreme disruption for the EU itself if this happens would be greater than some might think.”

Mr Jen, a Taiwanese national and adviser to Asian sovereign wealth funds, doubted whether central banks would deplete their sterling holdings, given the lack of viable alternatives.

He said: “If you stand back and look at Britain’s ‘CV’, it’s actually not bad at all.

Central banks are sceptical about EMU, Mr Jen argued (Image: GETTY)

A weaker pound had already led to a big improvement in the UK's current account, an expert said (Image: GETTY)

“It has a trusted legal system, a global financial centre, and a lot of soft power.

“The Bank of England is one of the very few central banks on a normalisation path.”

Mr Jen said the problems caused by Brexit would be resolved over time because there was no way that large economies were going to shut their doors to each other and stop talking.

He said: “The I think that the UK economy is doing better than people say, and sterling is very cheap at this level.”

Bernard Connolly, the European Commission’s former currency director and founder of Connolly Associates, maintained a weaker pound had already led to a big improvement in the UK's current account when adjusted for the jobs boom and full employment - the metric that matters.

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Mr Connolly contended a further slide would make the UK economy even more competitive and narrow the deficit further.

He said: “Markets have fits of irrationality but they are not stupid. They would quickly come to the conclusion that the pound has become more attractive.

“Everybody is primed to think sterling will fall if there is no deal, just as everyone was programmed to think that the stock markets would crash if Donald Trump was elected.

“Well, they did for about 12 hours, and we know what happened after that.”

The world would cast the euro aside if there was a showdown between the EU and the UK, Mr Jen said (Image: GETTY)

The news comes after Bank of America revealed sovereign wealth funds were likely to sell up to £100billion of UK bonds if Brexit talks turned sour.

The US bank warned selling on this scale would send sterling cascading down to lows not seen since the mid-1980s, with a risk of cliff-edge falls if the exchange rate breaks below £1.10 against the dollar.

A short burst of selling followed the June 2016 referendum as central banks executed the biggest liquidation of sterling assets since their data series began.